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August 6, 2013

S&P 1500 Pension Plan Funding at Highest Point Since 2008

Deficits are big, but nowhere near where they once were

It finds funding levels of pension plans sponsored by S&P 1500 companies continued a strong rebound in 2013, with the aggregate deficit decreasing by $10 billion during the month of July to $212 billion. While deficits in the billions might seem worrisome, it’s actually the lowest level since the economic crisis first hit in 2008.

Equity markets staged a strong performance during the month with the S&P 500 index rising 5.1%. However, discount rates dropped back slightly in July after sharp increases in May and June, dampening the improvement slightly.

According to Mercer analysis, an estimated 17% of plan sponsors had assets in excess of their pension obligations as of July 31, compared to only 4% at Dec. 31, 2012. Mercer also estimates that if discount rates rose another 1%, the number of sponsors with fully funded pension obligations could exceed 40%.

“So far, plan sponsors are having a great year in terms of funded status improvement,” Jonathan Barry, a partner in Mercer’s Retirement consulting group, said in a statement. “As a result, many sponsors are beginning to take preparatory steps not only in terms of asset allocation changes but also in preparing for pension buyouts and cash outs that entail a series of transition, legal and administrative steps. Sponsors don’t want to be caught napping as these opportunities arise“

The estimated aggregate value of pension plan assets of the S&P 1500 companies as of Dec. 31, 2012, was $1.59 trillion, compared with estimated aggregate liabilities of $2.14 trillion. Allowing for changes in financial markets through July 31, 2013, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.76 trillion, compared with the estimated aggregate liabilities of $1.98 trillion.